Updated Statement on Current Market Conditions (03/10/2020)

To our shareholders:

We believe communication to our shareholders in times of stress is critical. The markets continue to be extremely volatile as a result of several forces, most notably the coronavirus (COVID-19) outbreak and the significant Organization of Petroleum Exporting Countries (OPEC) actions affecting the energy sector.

Our guidance has not changed: we believe the most prudent action for shareholders, based on our in-depth understanding of the investments in our portfolios, is to stay invested according to their long-term plan. Though the markets continue to be bumpy, we don’t think the issues change our core long-term investment approach.

However, with the new developments in the oil markets, we want to update you on our portfolio positioning for the short and long term:

  • What happened in energy markets: The energy markets were already facing lower demand as the coronavirus’ spread impacted global industrial supply chains and pressured already-anemic global growth. As recently as Thursday March 5th, OPEC was looking to cut oil production to balance the market and support flagging oil prices. But over the weekend, Saudi Arabia, the world’s top oil exporter, broke off with its ally Russia, and threatened to discount its crude and raise production. This “price war” in the face of weak demand spurred oil prices to drop over 30%. This was oil’s biggest one-day drop since the early-1990s Gulf War. 
  • How this affects our stock portfolios: RE Advisers and Homestead Funds have no exposure to small-cap energy stocks. Among large caps, we are currently underweight versus our Russell 1000 Value Index and hold only higher-quality companies that we believe have financial strength to outlast current market conditions. Falling stock prices are disconcerting, but also present opportunities. We are in constant pursuit of smart investments that we believe will reward shareholders over the long run while minimizing risk.
  • How this affects our bond portfolios: Regarding the positioning of our fixed income portfolios, liquidity remains plentiful and we have emphasized high-quality holdings versus the index across all of our funds.

We must also plan for the possibility that the coronavirus outbreak will impact our daily business operations. RE Advisers and Homestead Funds have an established Business Continuity Plan (BCP) for such instances. The logistics of our BCP are tested regularly and we are confident that employees will be able to continue business-critical operations if we need to activate our plan. We also have been in contact with the Funds’ critical service providers, and we have confidence in their ability to continue business-critical operations. As the current situation is rapidly evolving, we are actively monitoring key aspects of the business and are prepared to respond.

As always, our client service team is available during normal business hours to speak with you about your investments and address any concerns you may have about the current volatility in the markets.

We thank you for your support and confidence.

Best,

Mark D. Santero

The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.  Indices are unmanaged and investors cannot invest directly in an index.

Debt securities are subject to interest rate risk, credit risk, extension risk, income risk, issuer risk and market risk. The value of U.S. Government securities can decrease due to changes in interest rates or changes to the financial condition or credit rating of the U.S. Government. Investments in asset-backed and mortgage-backed securities are also subject to prepayment risk as well as increased susceptibility to adverse economic developments. High-yield, lower-rated, securities involve greater risk than higher-rated securities.

Equity securities generally have greater price volatility than fixed-income securities and are subject to issuer risk and market risk.  Securities of small and medium-sized companies tend to be riskier than those of larger companies.

Investing in mutual funds involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Investors should carefully consider fund objectives, risks, charges and expenses before investing. The prospectus contains this and other information about the funds and should be read carefully before investing. To obtain a prospectus, call 1.800.258.3030 or visit homesteadfunds.com.

Homestead Funds’ investment advisor and/or administrator, RE Advisers Corporation, and distributor, RE Investment Corporation, are indirect, wholly owned subsidiaries of NRECA. 03/20